Great Slump

The Great Slump was a period of national economic downturn in the United Kingdom which encompassed the 1930s; a part of the wider Great Depression, it was Britain's largest and most profound economic depression of the 20th century.

Background
World War I did irreparable damage to the British economy. The country entered the postwar period heavily in debt and with key industries vulnerable to foreign competition. The war cost Britain more than £11 billion. Only a fraction of this expenditure was covered by increased taxation. The national debt rose from £650,000 to £8 billion, mostly owed to investors by way of war loans. After the war, about a half of the government's income from taxation was spent on servicing the debt. Britain also came out of the war owing £850 million to the United States, although the British were in turn owed money by other wartime allies. This chain of debts complicated international financial relationships, blocking the return to a stable global economy.

British industry coped well with the demands of war, but while its factories focused on war production, exports suffered. In the postwar period, it proved impossible to recover the lost markets. Britain's industrial production had been falling for decades, but in 1914 its shipyards, for example, had built more ships than the rest of the world combined. By the 1920s, such traditional industries had simply lost their competitive edge.

History
The crisis in the world economy, known as the Great Depression, is generally dated to 1929, but the economic woes of the Interwar period started much earlier in Britain. Mass unemployment struck in 1920-21, following a brief inflationary boom. After that, the number of jobless never fell below 1 million until World War II.

Production levels of coal mining, shipbuilding, and textiles decreased, turning areas dependent on such traditional industries into persistent unemployment black spots. Agriculture was also thrown into crisis by falling prices and global overproduction. Yet Britain's government, bankers, and industrialists continued to dream of returning to the life of the prewar world, with the City of London as the financial center of the global economy. It was this vision that lay behind the economically irrational decision to return to the Gold Standard in 1925, a system under which the nation's currency could be exchanged for a fixed weight of gold on demand at the central bank. This fixed the value of the Sterling well above its natural exchange rate. The move raised the cost of British exports, depressed wages, and worsened the fate of struggling industries.

Escalating tensions
In 1926, a crisis in the coal-mining sector led to the general strike, the era's most famous challenge to the established order. Mine-owners responded to foreign competition and declining profits by demanding wage cuts and longer working hours. When the country's million-strong coal miners refused to accept the owners' terms, they found themselves locked out of the pits. The trade union reluctantly embarked on a national strike in support of the miners. The government, aided by volunteers, undertook emergency measures to maintain essential services. Moderation and good sense on both sides largely averted violence. After a week-long stalemate, a compromise was negotiated with the government, which allowed the trade union leadership to call off the national strike. The miners, however, maintained their stance. They continued to strike for six months, but were ultimately starved into submission,

In the end, it was not the workers' militancy that rocked the established order, but a worldwide economic catastrophe. The crash of the New York Stock Exchange in October 1929 signalled the beginning of the Great Depression. World trade shrank, currencies were devalued, banks collapsed, industrial and agricultural output plummeted, while unemployment figures soared. By December 1930, the number of people left jobless rose above 2.5 million in Britain. The Labour Party, led by Ramsay MacDonald, won a general election in May 1929, unseating Stanley Baldwin's Conservatives. The new government now faced the consequences of global economic turmoil. MacDonald and his Chancellor of the Exchequer, Philip Snowden, were under pressure to slash government spending. Then in 1931, a banking collapse in Austria and Germany had a knock-on effect on Britain. The Bank of England advised budget cuts to the government in order to avoid the collapse of Sterling.

Altered politics
When Snowden proposed cutting unemployment benefit as part of a package of austerity measures, nine Labour ministers resigned. MacDonald stayed on as Prime Minister, forming a coalition government with the Conservatives and Liberals, while the Labour Party went into opposition. The move ate into the pay of all public employees, including sailors of the Royal Navy, who staged protests at Invergordon. Inflated accounts of this "mutiny" led to renewed pressure on Sterling and the Gold Standard had to be abandoned.

The pound devalued sharply. The long-term effect of this devaluation was beneficial, but the shock of the crisis to national self-confidence was palpable. By 1932, more than half the working population remained idle in regions such as South Wales, Tyneside, and parts of Scotland. The government took timid measures to revive local economies, providing funding under the Special Areas scheme, while attempting to limit the cost of unemployment. The apparent bankruptcy of the existing system seemed to validate new social and political beliefs. Young people flocked to embrace socialism and Marxism, provoking a ready audience for works such as George Orwell's The Road to Wigan Pier, distributed by the Left Book Club. The Communist Party of Great Britain, founded in 1920 in the wake of the Russian Revolution, never won a mass following, but was nonetheless influential. At the other end of the political spectrum, Oswald Mosley, a disillusioned former member of the Labour government, established the British Union of Fascists in 1932. The membership of the party was never large, but the aggressive posturing of Mosley's supporters ensured plentiful publicity. In October 1936, a provocative BUF march through a predominantly Jewish area of London's East End led to violent clashes with anti-fascists. This "Battle of Cable Street" stirred the government to ban political uniforms and limit rallies. After this, the influence of Mosley and the BUF sharply declined.

Democracy intact
In truth, unlike many other countries in Europe, Britain in the 1930s remained a remarkably stable parliamentary democracy. While there were some local protest by the unemployed, the majority of the population remained largely contented. The deflationary slump produced stable or falling prices, while wages tended to rise, improving living standards. The introduction of advanced coal-cutting machines also stemmed the decline of the old industries. A general election in 1935 confirmed the Conservatives as the largest party in the House of Commons under Stanley Baldwin. The British economic, social, and political system survived the Depression surprisingly intact.

Aftermath
In retrospect, mass unemployment was the dominant image of the Interwar Years. This bred a determination among Britain's policy makers to ensure it would not happen again. With strong growth in new industries such as motor manufacture and electrical goods, British industrial production in the late 1930s was 75% higher than it had been before World War I. However, unemployment remained stubbornly high in the areas most affected by the Depression. It was not until 1940 that nationwide unemployment fell below 1 million for the first time in 20 years. By 1941, though, labour shortages posed a serious threat to the war effort.

The Keynesian method
Fearing that unemployment would return at the end of the war, British politicians came under the influence of the economist John Maynard Keynes. During the 1930s, Keynes had argued that governments should abandon their obsession with balancing their budgets. Instead, they should run budget deficits to stimulate the economy during a slump. He explained how governments could use spending and interest rates to manage demand in the economy and maintain full employment. There was interest in Keynes' ideas during the 1930s, but the government did not abandon traditional economic policy. After World War II, however, Keynes' ideas became the basis for successful efforts by post-1945 British governments to maintain full employment.